Retail Is Dead Long Live Retail by Mark Stone
December 2012. More than ever this Christmas season, the news is full of stories about the death of "brick and mortar" retail and the triumph of online retail. Best Buy and JC Penny's have been singled out as examples of companies fighting for survival, and Amazon is everyone's clear winner. While I agree with the assessment of winners and losers, I disagree about the cause. It isn't brick and mortar versus online. Its an information battle between consumer and retailer, and the consumer is winning. At least that's my personal experience.
I'll start with an experience from a year and a half ago: buying a car. This was my first time buying a car in the smartphone-enabled era, and it has really taken most of the pain out of dealership haggling. At this point you can easily walk into any dealership with information at hand on the blue book value of any car, any make or model, new or used. You can get vehicle history by VIN number. And you can have a loan calculator at your fingertips to tell you everything you need to know about financing a car loan, should you need to go that route.
We got a used 2010 Grand Cherokee, and the actual haggling portion of the discussion took maybe 10 minutes. I knew how much my trade-in was worth. I had not been considering a Grand Cherokee, so had done no advance research, but thanks to my phone knew within minutes what a reasonable price was for the model in front of me. And the fact that everyone in the discussion knew that all the information was on the table made the whole experience that much more relaxing. This stands in stark contrast to the experience of my parents' generation. My mom will still get a knot in her stomach just thinking about entering a dealership.
Fast forward to this Christmas season. "Showrooming" - we've all done it. You're casually browsing a retail store on one of those rare occasions when you actually set foot in a physical store. But you've got your smartphone handy, and for any item that actually tempts you, you do a quick price comparison online. Particularly with consumer electronics, you're always checking to see if you could get a better deal from TigerDirect, NewEgg, and of course Amazon. No one has been hammered harder by this trend than Best Buy. But Best Buy's latest strategy -- price matching -- is not a solution. Its strictly triage: designed to slow the bleeding in the hopes that a real cure can be found before the patient expires.
The problem is not limited to consumer electronics. Venerable JC Penney is on the ropes too. Certainly Penneys gets points for originality for its new "store within a store" concept, whereby each retail location is a collection of brand-specific boutiques. A more intimate, personal shopping experience is certainly one way to compete with online. And playing to brand loyalty has the potential to differentiate from the generic online experience. The problem is this sort of retail experience is even less convenient and higher price than what Penneys offered before, widening the gulf on price/convenience with Penneys' online competitors. And the JC Penney strategy assumes a level of brand loyalty that consumers no longer seem to feel.
Quoting the Huffington Post article: "J.C. Penney is trying to borrow some equity from brands," said Stephen Hoch, a professor of marketing at the University of Pennsylvania Wharton School of business. "The question becomes how do you coordinate a hundred different experiences?" Perhaps more significantly, so far the plan "has alienated more shoppers than it has attracted."
The bottom line: today's consumers are driven more by data and information than by a "brand experience".
Certainly this is true in my own case. My Christmas gift to myself this year was a Samsung Chromebook, 11.6" of magic in a very affordable $249 package. The problem? The $249 Chromebook has been out of stock everywhere since October.
I know this because I spent a good chunk of time online over Thanksgiving weekend researching where I might purchase said Chromebook. From the comfort of my couch I determined that Amazon would gladly take my order, and then ship me one when they had inventory again, and that no Best Buy in the state of Washington had one in stock. Since I had errands to run near the mall, I figured there was no harm in hitting the local Best Buy and seeing if they had a display model they'd be willing to part with.
My Best Buy experience was predictably horrible. First the sales person questioned my choice of a Chromebook, saying it had serious limitations and that perhaps I'd like to look at a netbook or low end notebook instead. These were, by the way, items they had in stock and that cost more than $249. Then the sales person tried to upsell me to the more expensive Samsung Chromebook. I declined. Finally the sales person went to check "in the back" to see if they happened to have the model I wanted. I knew they didn't have it, but waited patiently. Finally, after this 20 minute preamble, we came to the conversation I wanted to have since walking in the door.
"So, would you sell me the display model?"
"No? Just flat out no?"
"No. Absolutely not."
"I have money to spend today. I really don't care if I spend it with you or Amazon. But the only advantage you have over Amazon is that I could walk out of here with the product today instead of having to wait."
"Fine," I said, and walked out. Five minutes later I had my order placed with Amazon via the Amazon Mobile app on my phone.
Now fast forward about 12 days. I've checked Amazon's site daily, and there's no sign that my order is any closer to shipping. I have, however, seen a news item about the same Chromebook model being made available to educators for $99. This leads me to believe that there is inventory somewhere. So I get on the Best Buy website again, and start checking. Low and behold, a different Best Buy a little further away claims to have inventory. I promptly cancel my Amazon order, place an order on Best Buy's website for pick-up at that particular store, and half an hour later I have a confirming email from Best Buy that my order is ready. I spend about five minutes in Best Buy, and walk out Chromebook in hand.
So does Best Buy or Amazon have the upper hand in their on-going battle? My guess is Amazon has the clear upper hand, but the moral of my story is that the real winner is the information-armed consumer. Like millions of other technology shoppers, I have no allegiance to brand or store, but I do keep a vigilant eye on price and availability. Retailers have to start taking my knowledge of price and availability as a given, and build their business accordingly.
One interesting footnote to this story. After playing around with the Chromebook for a couple of days, I decided I wanted to be able to hook it up to our HDTV. An errand that day would take me into the same shopping center as our local Radio Shack, so I stopped in to see if they had the HD cable I'd need. They indeed had a 6' cable. For $27.99. I walked out of Radio Shack, sat down in my car, and via phone ordered the same cable from Amazon for $9.99. Since I'm a Prime customer there was no shipping charge and I got the cable two days later.
I feel sorry for Radio Shack. They've been a fixture in my life since I was a nerdy teenager. But I can't waste that kind of money on them. They need to get their business model right or get out of the retail business.